1989 (3) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of additional conveyance allowance in total income.
2. Taxability and deduction of incentive bonus under section 10(14) of the Income-tax Act, 1961.

Detailed Analysis:

1. Inclusion of Additional Conveyance Allowance in Total Income:

The primary issue was whether the additional conveyance allowance paid by the Life Insurance Corporation (LIC) to a Development Officer should be included in the total income. The Tribunal noted that the relationship between Development Officers and LIC is considered an employer-employee relationship as per the Andhra Pradesh High Court's decisions in K.A. Chowdary v. CIT and M. Krishna Murthy v. CIT. Consequently, all emoluments received, including additional conveyance allowance, are to be assessed under the head "Salary."

The Tribunal examined section 10(14) of the Income-tax Act, which allows exemption for any special allowance specifically granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of duties. The Tribunal concluded that the additional conveyance allowance granted by LIC, although linked to the volume of business transacted, was specifically meant to cover conveyance expenses incurred in the performance of duties. Therefore, such allowance should be excluded from the total income under section 10(14).

2. Taxability and Deduction of Incentive Bonus:

The Tribunal addressed whether the incentive bonus paid by LIC is fully taxable or if any deduction could be allowed under section 10(14). The incentive bonus is considered a reward for services rendered and not merely reimbursement of expenses. The Tribunal acknowledged that Development Officers incur various expenses, including those for training agents, maintaining business, and addressing grievances, which are necessary for earning the incentive bonus.

In cases where accounts are maintained, the entire expenditure proved should be allowed as a deduction under section 10(14). For cases without maintained accounts, the Tribunal upheld the practice of allowing a deduction based on an estimate, commonly set at 40% of the incentive bonus, as established in previous Tribunal decisions such as Sri J. Muralidhar Rao's case. This estimate was deemed reasonable and supported by evidence, and the High Court had upheld the Tribunal's decision, affirming that Development Officers are entitled to such deductions.

Overlap of Allowances:

The Tribunal addressed concerns about overlapping allowances, noting that standard deductions under section 16(1) do not preclude additional conveyance allowance from being excluded under section 10(14). The Tribunal clarified that other expenditures beyond conveyance are incurred to earn the incentive bonus, justifying the allowance of a 40% deduction from the incentive bonus in addition to the exclusion of additional conveyance allowance from total income.

Conclusion:

The Tribunal concluded that additional conveyance allowance should be excluded from total income under section 10(14), and a 40% deduction from the incentive bonus is permissible where accounts are not maintained. The orders of the Commissioner of Income-tax under section 263 were set aside, and the assessments made by the Income Tax Officer (ITO) were restored, resulting in the appeals being allowed.

Separate Judgment:

Shri T.V. Rajagopala Rao, Judicial Member, concurred with the majority opinion but added that where overlapping is found, the fact-finding authorities may grant a lower percentage of deduction from the incentive bonus, subject to a maximum of 40%.